Why Switzerland Has the World's Best Health Care System

Paracelsus, a leading physician of the Swiss Renaissance. Image via Wikipedia.

Long-time readers of this blog will know that my favorite health policy topic is the Swiss health care system. So I was glad to see Megan McArdle, Tyler Cowen, and Ezra Klein devote some space to the topic on Monday, provoked by Paul Krugman’s fact-free claim that “consumer-based medicine has been a bust everywhere it has been tried.” (Indeed, as Tyler and Ezra point out, Krugman once praised Obamacare as a “plan to Swissify America,” arguing that “a Swiss-style system of universal coverage would be a vast improvement on what we have now.”)

Megan’s piece is especially worth reading, as she tackles the question I have been spending a lot of time on—whether or not it is better for individuals or governments to be in control of health spending:

It’s all very well to say that people shouldn’t have to make those decisions on the basis of money. But that’s all the government is going to do. Sure, there are some procedures that people just shouldn’t have (like a lot of back surgery). But a lot of this is value judgements: hip replacements for elderly patients, expensive chemotherapy that may extend life by a few months, more convenient dosing schedules or better side-effect profiles for brand name drugs. Unless we simply rely on across-the-board reimbursement cuts–which would be moronic on every level–the government is mostly not going to be deciding which treatments are effective; it’s going to be deciding which treatments are cost-effective. We haven’t taken doctors out of the business of selling health care to patients; we’ve just added a middleman.

Now, maybe you think that the government is smarter than the consumers it’s speaking for. But how does the government know what you value most: an extra three months of life when you have cancer, or an extra five years of walking after age 89, or an extra $4,000 right now?

The fundamental problem with government rationing is that cost-effectiveness is subjective. Every individual has their own needs and priorities, and a one-size-fits-all approach is profoundly inhumane.

Comparing Swiss health expenditures to ours

Ezra Klein, who is an advocate of the Swiss system for many of the same reasons that Krugman is/was, nonetheless says, “The example of the Swiss system shows a) that the consumer-driven model doesn’t work to control costs and b) the irrelevancy of the argument over whether individuals are consumers at all.”

Ezra points out that Swiss health expenditures per capita are the second-highest in the world (actually they’re third, behind the U.S. and Norway), and cites this fact as an argument for why consumer-driven health care won’t reduce health costs.

But there are several flaws with this argument: (1) Switzerland is a rich country, and one cannot discount the likelihood that citizens of a wealthy country will freely choose to spend more on health care; (2) Purchasing power parity adjustments may not fully account for higher Swiss costs of living; (3) the growth of health costs in Switzerland (and the U.S., for that matter) are below the OECD median: from 1996 to 2008, average PPP-adjusted per-capita expenditure growth in Switzerland was 4.6 percent, or 28th in the 34-country OECD rankings; the U.S. averaged 5.5 percent, ranking 22nd. (The U.K. ranked 13th at 6.7 percent.)

The performance of Switzerland is even more impressive when you consider how fiscally stable it is. The Swiss system, called Santésuisse, is striking in its differences to ours. Government spending on health care in Switzerland is only 2.7 percent of GDP, by far the lowest in the developed world. By contrast, in 2008, U.S. government spending on health care was 7.4 percent of GDP. If the U.S. could move its state health spending to Swiss levels, it would save more than $700 billion a year.

Despite this apparent stinginess, the Swiss have achieved universal coverage for all its citizens. The Swiss have access to the latest technology, just as Americans do, and with comparably low wait times for appointments and procedures. And the Swiss are among the healthiest people on earth: while life expectancy is not the ideal proxy for overall health, nor of a health care system’s performance, life expectancy for a Swiss citizen on his 65th birthday is second only to that of Japan’s.

How do they do it? Can their model be replicated in the U.S.?

Features of the Swiss health sysetm

Swiss citizens buy insurance for themselves; there are no employer-sponsored or government-run insurance programs. Hence, insurance prices are transparent to the beneficiary. The government defines the minimum benefit package that qualifies for the mandate. Critically, all packages require beneficiaries to pick up a portion of the costs of their care (deductibles and coinsurance) in order to incentivize their frugality.

The government subsidizes health care for the poor on a graduated basis, with the goal of preventing individuals from spending more than 10 percent of their income on insurance. But because people are still on the hook for a significant component of the costs, they often opt for cheaper packages; in 2003, 42% of Swiss citizens chose high-deductible plans (i.e., plans with significant cost-sharing features). Those who wish to acquire supplemental coverage are free to do so on their own.

99.5% of Swiss citizens have health insurance. Because they can choose between plans from nearly 100 different private insurance companies, insurers must compete on price and service, helping to curb health care inflation. Most beneficiaries have complete freedom to choose their doctor, and appointment waiting times are almost as low as those in the U.S., the world leader.

Switzerland’s imperfections

Naturally, such a system will not be attractive to those who implacably oppose the idea of a private health-care sector. But conservatives will also find objectionable elements to the Swiss system. In important ways, the Swiss system resembles that of Massachusetts and PPACA. The Swiss have an individual mandate. The government defines the minimum benefit package, which has been subject to expansion from special-interest lobbying, and is more comprehensive and less consumer-driven than it could be. The government has enacted Medicare-style price controls for hospital and physician reimbursement. Insurers must charge similar rates to the young and old (“community rating”), must cover pre-existing conditions, and must operate as non-profit entities. Princeton economist Uwe Reinhardt describes Switzerland as “a de facto cartel of insurers and health care practitioners who transact with one another in a tight web of government regulations.”

As I noted above, Ezra and others believe that the similarities between PPACA and Santésuisse indicate that conservatives should support Obamacare. But there is an enormous difference between adding Swiss-style controls and subsidies onto a purely private, individual health insurance market, and bolting those same provisions onto the malformed American system, as PPACA did. The most significant difference between the Swiss and American systems is in the ability of individuals to consume health care in value- and cost-conscious ways. Only one tenth of Americans buy insurance for themselves, the rest getting coverage through their employers or the government. In Switzerland, everyone buys insurance for himself.

An American adaptation of the Swiss system would not require an individual mandate: there are market-based alternatives for avoiding the “adverse selection death spiral,” such as requiring those who opt to forego insurance to wait a few years before buying insurance again. Ideally, the American version would give insurers a lot more latitude to come up with innovative plan designs, so that insurance could remain inexpensive, while reflecting what consumers actually want. It wouldn’t force young people, just entering the workforce, to subsidize the old. Also, the Swiss system’s goal of preventing individuals from spending more than 10 percent of their income on health insurance exposes the system excessively to health cost inflation; instead, the U.S. would be better off adopting a defined-contribution system, like the one proposed by Paul Ryan, in which insurance subsidies grow at a pre-defined, sustainable rate.

Politics is the art of the possible

Indeed, the fact that both liberals and conservatives would find objectionable elements to Switzerland is a large part of its appeal. It achieves the policy priorities of liberals (universal coverage; regulated insurance market) and of conservatives (low government health spending; privately-managed health care). Both sides could declare victory, and yet also have plenty to complain about.

In other words, Switzerland provides the contours of a bipartisan solution: one that stands a chance of gaining more than 60 votes in the Senate. Purists on either side will object, but as an accomplished Saxon reformer once put it, “politics is the art of the possible.” Those of us who object to the current system need to ask ourselves: are we willing to give up on real entitlement reform, that could bring the U.S. back from the brink of bankruptcy, in order to maintain our philosophical purity?

It goes without saying that evolving the American health care system into the Swiss one is no small task. But Switzerland helps us visualize the direction that American reform should take, and provides a real-world example of how such reforms could work out.

UPDATE: Here’s a video of Harvard Business School’s Regina Herzlinger speaking about the Swiss system:

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I’ve never agreed with your previous attacks on “Obamacare,” but this looks like a happy compromise. There’s no question that consumers need to take charge of their health care spending. It’s the only way to bring costs down.

I didn’t make it to Switzerland during my last visit to Europe, but I did notice some pretty sizable (pun intended) differences between the average French or Italian person and the average American. So, I have to question how much we can extrapolate from Switzerland to the US. There are some pretty significant cultural factors that are playing pretty heavily into our medical cost picture.

Because of the Washington Pay-To-Play system we effectively have lobbyists for diabetes 2, cancer, cardiac disease, and probably Alzheimer’s but we don’t know it yet. Then we have more lobbyists to treat them all. We understand that diabetes 2 is almost entirely preventable, and cancer and cardiac disease about a third with current knowledge. Over years we are talking trillions of dollars.

Our Pay-To-Play system, a Founding Flaw, is guiding us more and more into an inefficient economy of crony capitalism and plutocracy. Medical care overall plus the financial sector are eating 1/4 US GDP which is unsustainable. No market gave us that, Pay-To-Play did.

Yeap. In fact, did you know that Currently, many insurance companies do not allow adult children to remain on their parents’ plan once they reach 19. Companies cannot do that any more. Search onilne for “Penny Health Insurance” and you can insure your kids if you are in the same boat.

The correlation between a healthcare system and health is weak. The Swiss are generally healthier than we are, regardless of what the doctors do. You can’t say that a certain city must have an inefficient police force because the city is high-crime. It might just have a lot of criminals.

Are Americans more unhealthy by nature? What affect did the system have on creating unhealthy Americans? Our current HC systems focuses on sick people, and not so much on preventive medicine. What effect does that have on the health of Americans?

Switzerland’s system of health care Would seem to be a model that Could well serve the common welfare Of the U.S as copy cat. Let the individual pick From private competitive plans, Value and choice for any sick, Worth a try that reform demands. Has the U.S. gotten too big To take ideas from the small? Keep doing the nanny state jig, And the U.S. is gonna fall.

I live in Switzerland and am just back from an extended trip to the US. EVERYBODY talks about health care in the US (not in a good way). The system seems entirely broken from top to bottom, and still (differently) so under Obamacare.

Having lived and worked in more than a few countries, I have to say that the system here works, and works well. It has some detractors, but truthfully, they have little to realistically complain about compared to just about everywhere else.

Because of my circumstances, I have the ability to move/relocate to the US if I wished. But I have to say that the health care ‘system’ is one of the major reasons why I would not do so.

But one factor you haven’t touched on is the generally high levels of wages in CH.

Having low-wage people performing “services” here is almost never done, because of the very high cost of even the most unskilled labour.

It’s very difficult to get people to buy their own health insurance when you have many people working for a very modest minimum wage (as is the case in the US).

[...] Why Switzerland Has the World’s Best Health Care System Our discussion of health care reform should start by compiling a set of bipartisan goals for an alternative health-care system: one in which everyone has access to affordable, fiscally stable, high-quality health care. Indeed, we have an example of such a system in Switzerland. Read more on Forbes [...]

The right always uses the “diversity” of our population to explain our mediocre health care population statistics. The same argument can be made when comparing a relatively uniform (in income and background) population in Switzerland with the U.S. A solution for one won’t necessarily work in the other.

Our health care costs per capita are over $9000/year. Our median income per family (average size 3-4 people?) is in the range of just under $50,000. Down a bit over the past ten years. That would mean that well over half the population would need substantial government subsidies to buy insurance. Furthermore if there was no mandate and they didn’t buy they would still receive “free” care in ER’s and other venues if they suddenly became ill.

The Swisscare proposal doesn’t add up and is obfuscation more than solution.

[...] Why Switzerland Has the World’s Best Health Care System Our discussion of health care reform should start by compiling a set of bipartisan goals for an alternative health-care system: one in which everyone has access to affordable, fiscally stable, high-quality health care. Indeed, we have an example of such a system in Switzerland. Read more on Forbes [...]